The Political Economy of Reforms in Egypt. Khalid Ikram
The Political Economy of Reform: A Survey with Special Reference to Egypt
Central to the political economy of reform is the conflict of interests between economic actors in a society.1 Changes in economic policies can drastically alter the distribution of winners and losers. A group that is in the winners’ column has every incentive to resist being relegated to that of the losers. What makes policy reform particularly difficult in developing countries, including Egypt, is that the pre-reform group of economic winners has more often than not become such by virtue of its political strength, generally obtained through wealth or close association with centers of power, such as the monarchy, the military, or the religious establishment. It would be demanding too much of human nature to expect this group to willingly cede its economic privileges—turkeys do not readily vote for Christmas. For policies to be reformed, the built-in resistance of such interest groups has to be overcome. Various political-economy models and case studies of individual countries attempt an explanation. This chapter surveys and develops approaches that are most relevant to the political-economy experience of Egypt.
Following Haggard (2000, 22–39), these approaches can be roughly divided into two groups: one that focuses primarily on the role of interest groups, and the other that emphasizes the importance of institutional arrangements. In practice the distinction is not nearly so clear-cut and the conduct of economic reform, and especially the sustainability of reform policies, often requires a melding of these elements. Indeed, Williamson (1994a, 20–21) notes that “from a political standpoint, the most difficult part of a reform program is not introducing the reforms but sustaining them until they have a chance to bear fruit and thus generate political support from the potential beneficiaries.”
The foregoing classification is not the only way of grouping different approaches. Roháč (2014), for instance, stresses two broad constraints on policymaking that could be used to classify the approaches: (a) the differences in incentives that voters, politicians, and bureaucrats face; and (b) the differences in the beliefs and mental models used by the public and the politicians. The discussion in this book largely follows the grouping proposed by Haggard.
Interest-group models emphasize the role of coalitions—how they can come together and how they can become influential enough to change the status quo. In order to do the latter, a pro-reform coalition has to be formed that can defeat the groups opposed to reform, or at least induce their acquiescence in the reforms. Such models have an impressive lineage, with Mancur Olson (1965, 1982) the best-known progenitor. Institution-focused models, on the other hand, emphasize the institutional and administrative restructuring to ensure that the economic reforms are efficient and have a better chance of surviving in the long run.
As Haggard points out, interest-group models face an important problem. These models can explain how a policy regime has come about after a struggle between different coalitions. If that policy regime has been in place for a substantial time, one might say that an equilibrium has been reached in that the coalitions have managed to optimize their political and economic strategies. Reform, however, is about policy changes. What would it take to upset the existing equilibrium and to change the dynamics between coalitions? If stakeholders are strong to begin with, how will their power be overturned? The best explanations in Egypt’s experience emphasize the part played by crises and by the design of reform packages, especially their comprehensiveness, and the extent and speed of compensation. These issues have been of particular relevance to Egypt.
Interest Groups, Crises, and Economic Reforms
In Egypt’s case, crises—military, political, and economic—have been crucial to empowering coalitions and triggering economic reforms that had a major effect on the economy. A few examples will illustrate the point.
On July 23, 1952 the Free Officers led a revolution and overthrew the monarchy. The principal motives behind the revolution were resentment against the corruption of the monarchy (also perceived as a major reason for the defeat in the 1948 war against Israel) and frustration with the failure of the politicians to rid the country of British occupation. The Free Officers did not have any well-defined economic philosophy or even a common political ideology (Nasser 1954; Vatikiotis 1961). They did, however, have a clear idea of who would be their foremost opponents—these would be the large landowners who formed the backbone of the former regime. The political and economic power of this coalition had to be broken, and new constituencies had to be created to support the revolutionary group. It was crucial to create these constituencies, because as Vatikiotis (1961, 218) notes, the Free Officers were an exclusively military group and “acceded to power without the active support of a single civilian group in Egyptian society.”
The power of the landowning coalition was evident. In the parliament elected in 1950—the last before the Free Officers’ revolution—landowners formed the mainstay of the regime, holding 63 percent of the seats (compared with only 14 percent by capitalists).2 Before the 1952 land reform, a tiny elite of about eleven thousand landlords (0.4 percent of the total)3 owned almost two million feddans (34 percent of the cultivated land);4 in fact, the two thousand largest landowners possessed nearly 20 percent of the agricultural land. At the other end of the spectrum, 2.6 million owners (94.3 percent) possessed 2.1 million feddans (35 percent) (Mabro 1974, 61, 73). However, once the army seized control of the country, the balance of power between the two competing coalitions—the Free Officers and the landowners—tilted decisively toward the former, and thus the existing equilibrium between the winners and losers could be altered.
The determination of the landowning faction in parliament to defend their privileges was made evident by their relentless opposition to any measure that tried to improve the distribution of land. For example, in 1945 a bill had been introduced that prohibited future acquisition of more than one hundred feddans of land. In 1950 another bill proposed breaking up, with adequate compensation, all holdings over fifty feddans. Another bill in 1950 provided that newly reclaimed agricultural land owned by the government should be sold only to peasants who owned less than two feddans. All these measures were decisively rejected by the parliament. “The most that could be wrung out of the landlord-dominated Parliament,” notes Issawi (1954, 135) “was a law requiring owners of large estates to provide better housing and health and social services for their tenants.” And what constituted better housing and other services lay in the eye of the landowner.
Similarly, a bill abolishing waqf (land and property gifted to an ecclesiastical or other corporation) had been introduced in 1937, but this also had been rejected by the parliament. (Family waqf amounted to nearly 600,000 feddans—about 11 percent of the cultivated area—and vested the use and enjoyment of the land in the heirs in perpetuity.)
The Free Officers recognized that the immediate order of business was to break the power of the landowning coalition. This led to the promulgation on September 9, 1952—barely a month and a half after the seizure of power—of a law on agrarian reform that limited individual ownership to two hundred feddans. The reforms had had a mixture of political, social, and economic objectives. First, it was to eliminate the power of the large landowners. Second, it aimed to improve the living conditions of the rural population. The reform measures did succeed in improving the condition of the tenants, whose disposable incomes increased as a result of the reduction in rents and by the greater security offered to their tenancy by the Agrarian Law.5 Third, it was to stimulate the movement of capital from the agricultural to the industrial sector by discouraging further land purchases and by permitting landlords to invest the government bonds (with which they had been compensated) in approved industrial enterprises. Fourth, it was to raise agricultural output, in the belief that an owner would put more resources into improving the land than would a tenant.
Of the stated objectives, the first was crucial. The reform measures stripped